eBay buying Skype for $2.6B

from cnnfn.com

SAN FRANCISCO (Reuters) - Online auction house eBay Inc. has agreed to buy Internet telephone firm Skype Technologies SA for $2.6 billion, the online auction house said Monday.

eBay plans initially to pay $1.3 billion in cash and $1.3 billion in stock and to make a further payout of up to $1.5 billion by 2008 or 2009 if financial targets are met, giving the deal a total value of up to $4.1 billion, eBay said.

Skype, whose software allows consumers to make free or low-cost phone calls anywhere in the world via the Internet, would be the biggest acquisition so far for 10-year-old eBay.

It tops the $1.5 billion eBay paid in 2002 for PayPal, which thrust eBay into the lead in the online-payment market. This year PayPal is on track to become a $1 billion business.

Skype, which is based in Luxembourg, offers a free service when calling other Skype users. Charges apply when Skype users connect to traditional telephones.

In just two years, Skype has attracted 54 million members to its free Web-based calling service. At current growth rates, it could double in size again within roughly a year.

The deal would join eBay -- a company prized for its Internet business model linking millions of paying customers as buyers and sellers, but facing maturing growth in its core U.S. auction market -- with a three-year-old firm with little revenue but explosive, international growth.

eBay (Research) must convince analysts and investors that the deal is necessary to stoke new streams of revenue growth and is worth the multi-billion dollar price paid.

While allowing potential benefits from providing communications services between buyers and sellers, particularly in China, Goldman Sachs analyst Anthony Noto said in a note to clients Friday that a licensing partnership could accomplish this without requiring eBay buy Skype.

America Online, for example, has partnered with Ingeneio, a supplier of lucrative pay-per-call Web services, which allow customers with questions before they buy to click a button located on the advertisement of a merchant and start an Internet phone conversation with a customer service agent.

"We struggle to see enough of a benefit to the marketplace from offering this service to get a sufficient return on a potential multibillion-dollar price tag," Noto wrote.